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The Trouble with H1-Bs

Despite what you might hear from political pundits these days, the H1-B program isn't about immigration. It's about temporary workers, and a new study finds that bringing in foreign workers slows down the process through which the U.S. labor market adjusts to new demands.

Tuesday, May 9, 2017
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It's H1-B visa season, when applications for 85,000 temp jobs come open for foreigners, and that means time for politics! 

The H1-B visa program is designed to allow U.S. employers to bring in foreign workers on a temporary basis to fill jobs that require a high level of skill, typically scientific skill. It's in the news because the Trump administration does not appear to be a fan of the program and proposes tighter enforcement to prevent employers from using workers on H1-B visas from replacing their U.S. counterparts.

The argument for H1-B workers is that they are useful to help employers fill temporary shortages of skills. The objections to the program include the argument that these workers are really just substitutes for U.S. workers. They are thought to be preferred by employers -- even though they are required to be paid the same wage as their U.S. counterparts -- because they can't quit without having to go back to their home country (with some complicated exceptions), and because they are motivated to be in the U.S. and earn much higher wages than they could in their own country.

Certainly there are quirky aspects to this program. The jobs it fills are mainly in computer programming, and that has been true for some time, which makes one wonder how temporary the shortages could be.  Maybe because of that, most of the H1-B workers are young (71 percent are between ages 25 and 34) and mainly from India (about 70 percent, depending on the year). The fact that the average H1-B visa holder earns about $70,000 per year suggests that these are probably not the highest-skilled jobs in the country. By the late 1990s, the Commerce Department estimated that 28 percent of all US programming jobs were held by H1-B visa workers.

When we talk about programs like this one, the question of whether it is "good" or "bad" for the country is almost impossible to answer objectively. What we can answer is, good for whom and bad for whom? A new study by John Bound, Gaurav Khanna and Nicolas Morales  examines that question, and the results should be familiar to anyone who has studied supply and demand.

So who benefits? The companies that employ them, leading to lower prices for the goods and services they produced and in turn benefits for consumers. I'm in India as I write this column, talking with people in the IT world. They say that young Indian IT workers love the idea of going to the U.S. on H1-B visas. They make a lot more money while they are there, and it's generally a time in their lives where, if they have families, spouses and kids, can more easily come with them for the three-plus years of the program. So U.S. employers can get their pick of overqualified candidates.

Who loses? U.S. employees in computer science see their wages lower as a result. Here's the finding that may be a surprise: College enrollment in IT programs declines when the H1-B visa program expands. Why should that be? Because there aren't as many IT jobs available to U.S. workers, and wages for them are lower, so some students would otherwise pursue that field go elsewhere.

There are many good arguments for immigration, but it's important to remember that the H1-B program is not about immigration. It is about temporary or guest workers. The notion of bringing in workers to meet temporary shortfalls in skill requirements might be persuasive in a small country where hiring in one big company can temporarily distort the entire labor market.

But that's not the case in the U.S., where we have a very big and very responsive labor market. Young people in particular are constantly trying to figure out where the jobs will be, colleges hunt for job-market niches where they can attract students and workers move thousands of miles if there are good jobs available. What we know from this study -- which parallels what we learned years ago in fields such as nursing -- is that bringing in foreign workers slows down the process through which the U.S. labor market adjusts to new demands. That seems to be the case for the H1-B program and the IT industry.

The fact that the U.S. IT industry seems to be so dependent on these foreign temps to meet mid-level programming jobs for so many years suggests that something is wrong. Smart-thinking pundits like to point out how government intervention distorts markets, preventing the adjustments that are necessary. Isn't that true here?

Peter Cappelli is the George W. Taylor Professor of Management and director of the Center for Human Resources at The Wharton School of the University of Pennsylvania in Philadelphia. His latest book is "Will College Pay Off? A Guide to the Most Important Financial Decision You'll Ever Make."




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